Outdated computers plague IRS

The top financial administrator at the Internal Revenue Service told Congress last week that the agency's financial reporting system cannot reliably track federal tax revenue and tax refunds nor can it prepare other key financial statements.

Donna Cunninghame, chief financial officer at the IRS, told the House Subcommittee on Government, Management, Information and Technology that computer systems that date to the 1960s and 1970s continue to plague the IRS' ability to adequately track the agency's financial statements, including budgetary resources.

"The extremely fragmented nature of IRS technology creates many problems,'' Cunninghame said. "The IRS must replace nearly its entire inventory of computer applications and convert its data on every taxpayer to new systems.''

Cunninghame's comments were in response to a General Accounting Office audit, the findings of which were basically accurate, she said. The hearing on the audit is the first in a series of hearings the subcommittee will conduct to examine the auditing of financial statements of selected federal agencies. In the late 1980s, Congress recognized that one of the root causes of waste in the federal government was poor financial management leadership, policies, systems and practices. March 1 was the deadline for the GAO audit statements.

Gregory Kutz, associate director of the GAO's governmentwide accounting and financial management issues group, said in his report that the IRS' antiquated computer systems are incapable of accounting for tax revenue and expenditures in a timely manner.

Kutz said the financial audit found several deficiencies in the IRS' accounting procedures, resulting in millions of dollars in fraudulent income tax refunds before they were verified.

Rep. Stephen Horn (R-Calif.), chairman of the subcommittee, said the IRS' outmoded computer systems have contributed to $17 million in fraudulent refunds, a misplaced government vehicle and misplaced government computer equipment.

Because of the disbursement of fraudulent refunds, the IRS estimates that of the $222 billion taxpayers owe the federal government in unpaid tax assessments, $119 billion, or 54 percent, is written off as bad debt. Horn said he hopes to see a better audit next year from the IRS.

"These are serious problems, many of which have plagued the Internal Revenue Service for years,'' Horn said. "We would hope that the agency's new leadership is taking strong action to remedy the situation.''

Paul Cosgrave, chief information officer at the IRS, told the subcommittee that the agency is working with the private sector to upgrade its financial management systems under the multibillion-dollar Prime systems integration contract, which the IRS awarded to Computer Sciences Corp. in December.

Prime will provide the program management and systems integration needed to improve the IRS' ability to process the more than 200 million tax filings it receives each year. But Cosgrave said the process to upgrade the financial system will take years, in part because the agency's top priority is fixing computers for the Year 2000 problem.